10-K 1 d10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2001 Commission File Number 2-71865 ----------------- ------------------------------ TEXLAND DRILLING PROGRAM-1981 ----------------------------- (Name of Registrant) TEXAS 75-1791491 ----- ----------------------------------- State of Organization) I. R. S. Employer Identification No. 777 Main Street, Suite 3200 Fort Worth, Texas 76102 ---------------------------------------- --------- (Address of Executive Offices) Zip Code Registrant's Telephone Number (817) 336-2751 -------------- Securities registered pursuant to Section 12(b) of the Act: Units of Limited Partnership Interest None ------------------------------------- -------------- (Title of Class) (Voting Units) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days YES X NO - This report contains a total 1 of 19 pages. 1 PART I Item 1. Business ----------------- Texland Drilling Program-1981 (a Limited Partnership) was formed on July 20, 1981 with $12,125,000 in aggregate Limited Partnership subscriptions for the purpose of engaging in the exploration for oil and gas. Such exploration has taken place principally in the geological area known as the Texas Permian Basin. The Partnership's drilling and exploration phase is complete. Development of the Partnership's properties is also complete; except for possible occasional developmental drilling which may be undertaken to the extent necessary to insure the maximum commercial recovery of reserves. In 2001, the Partnership drilled 9 such developmental wells. The Partnership has no plans to borrow funds or reinvest significant amounts of oil and gas revenues. To the extent that in-fill development is deemed advisable, however; such operations will be funded from available cash flow. See Note 6 of Notes to the Financial Statements on page 17 for information about major purchasers. Sales to such purchasers are on a competitive basis on short-term contracts customarily used in the industry. Should sales to these purchasers become interrupted, management believes alternative purchasers would be immediately available on similar terms. The price of oil and gas is affected by world wide supply and demand beyond the Partnership's control. The average posted price during the past five years for West Texas Sour (at an assumed gravity of 40 degrees), the primary type of Partnership oil, is as follows: 1997 $16.86 1998 $ 9.88 1999 $14.46 2000 $25.29 2001 $19.16 From January 1, 2002 to March 18, 2002, oil prices of such oil ranged from a low of $10.90 to a high of $18.15. Item 2 - Properties ------------------- The Partnership currently has an interest in 258 active gross oil and gas wells, representing 17.65 net wells. Two of the gross wells and 0.64 of the net wells are gas wells and the remainder are oil wells. The Partnership currently has 250 oil wells included in 8 different enhanced recovery projects operated by Texland Petroleum, Inc. Such enhanced recovery projects are designed to pressurize the oil bearing reservoirs and increase the producing rates, property life and overall ultimate recovery of oil. Item 3 - Legal Proceedings -------------------------- None 2 Item 4 - Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ In 2001, majority owners of aggregate Limited Partner Partnership Subscriptions approved an amendment that extends the term of the Partnership through December 31, 2006. PART II Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters ------------------------------------------------------------------------------ Omitted. Not applicable. Item 6 - Selected Financial Data -------------------------------- The following table presents selected financial data for each of the past five years ended December 31, 2001. The data has been derived from the audited financial statements: TEXLAND DRILLING PROGRAM - 1981 SELECTED FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, -------------------------------

~~TEXLAND DRILLING PROGRAM - 1981 SELECTED FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, -------------------------------~~ STATEMENT OF OPERATIONS DATA: ----------------------------- 2001 2000 1999 1998 1997 ~~1996~~ ----------- ----------- ----------- ----------- ----------- Revenues $1,327,968 $1,534,376 $ 995,456 $ 930,669 $ 1,481,650 ~~$ 1,694,003~~ Net Income / (Loss): Limited Partners 184,865 380,922 117,083 (649,141) 111,810 ~~314,195~~ General Partners 254,955 407,435 171,168 (414,113) 198,949 ~~402,096~~ ----------- ----------- ----------- ----------- ----------- Net Income / (Loss): $ 439,820 $ 788,357 $ 288,251 $(1,063,254) $ 310,759 ~~$ 716,291~~ =========== =========== =========== =========== =========== Net Income / (Loss) per $5,000 Limited Partner Units (2,425 Units Outstanding) $ 76 $ 157 $ 48 $ (268) $ 46 ~~$ 130~~ =========== =========== =========== =========== =========== BALANCE SHEET DATA: ------------------- Total Assets $1,457,338 $1,570,122 $ 1,679,430 $ 1,716,897 $ 3,124,611 ~~$ 3,402,265~~ Total Liabilities $ 55,102 $ 48,398 $ 38,017 $ 43,557 $ 46,981 ~~$ 46,594~~ Partners' Equity $1,402,236 $1,521,724 $ 1,641,413 $ 1,673,340 $ 3,077,630 ~~$ 3,355,671~~ PARTNERSHIP CASH DISTRIBUTIONS ------------------------------ Limited Partner (per $5,000 unit) $ 108 $ 175 $ 53 $ 85 $ 110 ~~$ 155~~ General Partner $ 348,100 $ 490,791 $ 197,900 $ 159,100 $ 430,700 ~~$ 506,700~~

3 Item 7 - Management's Discussion and Analysis of Financial Condition and Results -------------------------------------------------------------------------------- of Operations. ------------- Financial Results ----------------- Oil and gas sales decreased by approximately 11% in 2001 as compared to 2000. The average price of Partnership oil decreased by approximately 24% in 2001. The price of gas sold by the Partnership increased by approximately 29% in 2001. Gas sales represent approximately 20% of 2001 total oil and gas sales. The net change in oil and gas sales is due primarily to such oil and gas price changes in 2001. Oil and gas sales increased by approximately 49% in 2000 as compared to 1999. The average price of Partnership oil increased by approximately 80% in 2000. Fees to the managing general partner remained constant over the period 1999 through 2001. Depreciation, depletion and amortization are calculated on the units-of-production method. Therefore, changes in these amounts are affected by upward or downward revisions in future oil and gas reserve estimates. In addition, such revisions are also caused by changes in current prices of oil and gas, which correspondingly affect the number of future years that oil and gas properties will remain economically viable. Depreciation and depletion for 2001 is $204,153 as compared to $130,877 for 2000. Changes in depreciation and depletion for the period 1999 through 2001, are due primarily to the effect that changes in oil and gas prices have on the calculation of estimated future economically recoverable oil and gas reserves. Production expenses increased by 15% in 2001 as compared to 2000 due to an increase in workovers. Production expenses increased by 11% in 2000 as compared to 1999 due to increased production. Changes in oil prices substantially impact the net income and cash flow of the Partnership. All oil produced by the Partnership is sold under short term contracts that are immediately affected by changes in oil prices. Since 1981, world oil supply and demand conditions have caused prices to rise and decline in an essentially unpredictable manner. No changes in these circumstances are foreseen in the immediate future. Texland Drilling Program-1981 has substantially completed all the exploration and development on the oil and gas properties in which it has an interest. No long-term debt will be incurred and no new properties will be acquired. Therefore, no future liquidity problems are anticipated by the Partnership. Item 8 - Financial Statements and Supplementary Data: ---------------------------------------------------- See Index to Financial Statements on Page 9 of this report. Item 9 - Changes in and Disagreements with Accountants on Accounting and ------------------------------------------------------------------------ Financial Disclosures. --------------------- None. 4 PART III Item 10. Directors and Executive Officers of the Registrant ------------------------------------------------------------ The Partnership has no officers, employees or directors. The background of the General Partners is as follows: R. J. Schumacher - Age 73, Vice President and Co-Owner of Texland Petroleum, ---------------- Inc. since May, 1967, has been an independent oil operator involved in drilling and producing operations and the financing of oil and gas prospects, principally in West Texas, Oklahoma and Arkansas. He has served as an executive officer with Texland since its incorporation. For more than ten years prior to becoming an independent oil operator, Mr. Schumacher was the chief financial officer, contract drilling manager and land supervisor for an independent oil and gas drilling contractor and operator. Mr. Schumacher is a Certified Public Accountant. He received a Bachelor of Science in Commerce degree from Texas Christian University in 1950 and a Master in Professional Accounting degree from the University of Texas in 1951. J. N. Namy - Age 63 President and Chief Executive Officer of Texland Petroleum, ---------- Inc., was employed by Texland as a geologist in June 1978. From 1967 to 1970 he was employed by Pan American Petroleum Corp. in the Fort Worth Division. From 1970 to 1978 he taught at Baylor University achieving the rank of Associate Professor. During this time, he served as a consultant for several independent petroleum companies working on exploration and development projects in the Eastern Shelf and the Permian Basin of West Texas and New Mexico, as well as the southern Rockies of New Mexico and Colorado. He received his Bachelor and Master degrees from Western Reserve University in Cleveland, Ohio and his Ph. D. degree from the University of Texas at Austin in 1969. Mr. Namy is a member of the American Association of Petroleum Geologists, Geological Society of America and the Society of Economic Paleontologists and Mineralogists. J. H. Wilkes - Age 46, President and Chief Operating Officer of Texland ------------ Petroleum, Inc., was employed by Texland as a reservoir engineer in August 1984. From 1978 to 1984, he was employed by Sun Exploration and Production Company in Midland and Abilene, Texas. The first three years he served as a production engineer and for the remaining three years he served as a reservoir engineer. He received a Bachelor of Science degree in Petroleum Engineering from Texas A&M University in 1978. He is a member of the Society of Petroleum Engineers, A.I.M.E. and is a registered professional engineer in Texas. Item 11. Executive Compensation -------------------------------- See Note 5 of Notes to Financial Statements on page 17 of this report for information with respect to payments to the Managing General Partner. 5 Item 12. Security Ownership of Certain Beneficial Owners and Management ------------------------------------------------------------------------ Omitted. Not applicable to Registrant. Texland Petroleum, Inc. and Texland Properties-1981 are General Partners of the Partnership. Texland Petroleum, Inc. is the managing General Partner. Texland Properties-1981 is a general partnership formed between W. E. Rector, R. J. Schumacher and Texland Petroleum, Inc. Due to the death of W. E. Rector, the W. E. Rector interest is now held by the Rector Living Trust. Item 13. Certain Relationships and Related Transactions -------------------------------------------------------- See Notes 4 and 5 of Notes to Financial Statement on page 17 of this report for information with respect to certain relationships and related transactions. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ------------------------------------------------------------------------- (a)1 and (a)2 Financial Statement and Financial Statement Schedules See Index to Financial Statements on page 9 of this report. (a)3 Item 601 (Reg. S-K) Exhibits: None (b) Reports on Form 8-K: None (c) Item 601 (Reg. S-K) Exhibits: None (d) Other Financial Statements and Financial Statement Schedules: Not applicable. 6 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEXLAND DRILLING PROGRAM-1981 ----------------------------- Registrant By /s/ M. E. Chapman --------------------------------------- M.E. Chapman, Vice President - Finance Texland Petroleum, Inc. Date March 27, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated. By /s/ R. J. Schumacher --------------------------------------- R.J. Schumacher, Vice President Texland Petroleum, Inc. Date March 27, 2002 By /s/ J. N. Namy --------------------------------------- J.N. Namy, President & C.E.O. Texland Petroleum, Inc. Date March 27, 2002 By /s/ J. H. Wilkes --------------------------------------- J.H. Wilkes, President & C.O.O. Texland Petroleum, Inc. Date March 27, 2002 7 -------------------------------------------------------------------------------- Texland Drilling Program-1981, Ltd. Financial Statements December 31, 2001 -------------------------------------------------------------------------------- 8 Texland Drilling Program-1981, Ltd. Table of Contents -------------------------------------------------------------------------------- Report of Independent Auditors .............................................. 10 ------------------------------ Balance Sheets .............................................................. 11 -------------- Statements of Operations .................................................... 12 ------------------------ Statements of Partners' Capital ............................................. 13 ------------------------------- Statements of Cash Flows .................................................... 14 ------------------------ Notes to Financial Statements ............................................... 15 -----------------------------

All financial statement schedules have been omitted since the required information is included in the financial statements or the notes thereto or is not applicable or not required. -------------------------------------------------------------------------------- 9 REPORT OF INDEPENDENT AUDITORS The Partners Texland Drilling Program-1981, Ltd. We have audited the balance sheets of Texland Drilling Program-1981, Ltd. as of December 31, 2001 and 2000, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements listed in the accompanying index to the financial statements present fairly, in all material respects, the financial position of Texland Drilling Program-1981, Ltd. at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Fort Worth, Texas March 4, 2002 10 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Balance Sheets December 31, 2001 and 2000 --------------------------------------------------------------------------------

~~Page~~2001 ~~No.~~2000 ~~Report~~------------ of------------ ~~Independent~~ASSETS ~~Auditors~~Current Assets Cash $ 2,599 $ 58,887 Accounts receivable: Trade 91,976 145,346 Managing general partner 18,844 ------------ ------------ 113,419 204,233 ------------ ------------ Property and Equipment, at Cost Using the Successful Efforts Method Intangible development costs 7,244,553 7,107,019 Lease and well equipment 4,202,099 4,170,251 Producing leaseholds 161,495 161,495 ------------ ------------ 11,608,147 11,438,765 Accumulated depreciation, depletion and amortization (10,264,228) ~~Financial~~(10,072,876) ~~Statements~~------------ ~~Balance~~------------ ~~Sheets~~1,343,919 121,365,889 ~~Statements~~------------ of------------ ~~Operations~~$ 131,457,338 ~~Statements~~$ of1,570,122 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts payable: Managing general partner $ 55,102 $ 48,398 ------------ ------------ Partners' Capital 14Limited ~~Statements~~partners, of2,425 ~~Cash~~units ~~Flows~~outstanding 151,241,922 ~~Notes~~1,318,957 toGeneral ~~Financial~~partners ~~Statements~~160,314 16202,767 ------------ ------------ 1,402,236 1,521,724 ------------ ------------ $ 1,457,338 $ 1,570,122 ============ ============

-------------------------------------------------------------------------------- See accompanying notes to financial statements. 11 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Statements of Operations For the Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------------------------------------------

2001 2000 1999 ------------ ----------- --------- ~~ASSETS~~Revenue ~~Current~~Oil ~~Assets~~and ~~Cash~~gas sales $ 581,~~887~~313,969 $ 671,~~071~~481,720 ~~Accounts~~$ ~~receivable~~994,675 -Interest ~~trade~~income ~~(Note~~1,198 6)2,839 ~~145~~781 Gain on sale of assets 12,~~346~~801 ~~129~~47,~~649~~751 Other 2,066 ------------ ----------- --------- ~~204~~1,~~233~~327,968 ~~196~~1,~~720~~534,376 995,456 ------------ ----------- --------- ~~Property~~Expense ~~and~~Fees ~~Equipment,~~to atmanaging ~~Cost~~general ~~Using~~partner ~~the~~87,900 ~~Successful~~87,900 ~~Efforts~~87,900 ~~Method~~Production ~~(Notes~~expense 2504,158 3436,551 4393,804 ~~and~~Severance 5)tax ~~Intangible~~68,780 ~~development~~75,118 ~~costs 7~~49,~~107,019~~014 7Depreciation,~~122,249~~ ~~Lease~~depletion and ~~well~~amortization ~~equipment~~204,153 4130,~~170,251~~877 4158,~~179,519~~620 ~~Producing~~Other ~~leaseholds~~23,157 ~~161~~15,~~495~~573 ~~166~~17,~~379~~867 ------------ ------------ ~~11,438,765 11,468,147 Accumulated depreciation, depletion and amortization (10,072,876) (9,985,437)~~ ---------~~---~~ 888,148 746,019 707,205 ------------ ~~1,365,889 1,482,710~~ ------------ ---------~~---~~ Net Income $ 1439,~~570~~820 $ 788,~~122~~357 $ 1288,~~679,430~~251 ============ =========== ========= ~~LIABILITIES~~Allocation ~~AND~~of ~~PARTNERS'~~Net ~~CAPITAL~~Income ~~Current~~Limited ~~Liabilities~~partners ~~Accounts~~$ ~~payable:~~184,865 ~~Managing~~$ ~~general~~380,922 ~~partner~~$ ~~(Note~~117,083 5)General $partners 48254,~~398~~955 $407,435 38171,~~017~~168 ------------ ----------- --------- ~~Partners'~~$ ~~Capital~~439,820 ~~(Notes~~$ 4788,357 ~~and~~$ ~~7) Limited partners~~288,251 ~~2,425~~=========== ~~units~~=========== ~~outstanding~~========= ~~1,318,957~~Net ~~1,361,198~~Income ~~General~~per ~~partners 202~~$5,~~767~~000 ~~280,215~~Limited ~~------------~~Partner ~~------------~~Unit 1(2,~~521,724~~425 ~~1,641,413~~Units ~~------------~~Outstanding) ~~------------~~$ 76 $ ~~1,570,122~~157 $ ~~1,679,430~~48 ============ =========== =========

-------------------------------------------------------------------------------- See accompanying notes to financial statements. 12 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Statements of Partners' Capital For the Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------------------------------------------

~~2000~~Limited ~~1999~~General ~~1998~~Partners Partners Total ------------ ------------ -------------- ~~Revenue~~Balance ~~Oil~~at ~~and~~December ~~gas~~31, ~~sales~~1998 ~~(Note 6)~~ $ 1,~~481~~371,~~720~~427 $ ~~994~~301,~~675~~913 $ ~~903~~1,~~162~~673,340 ~~Interest~~Partners' ~~income~~distributions 2(127,~~839~~312) ~~781~~(197,900) 1(325,~~141~~212) ~~Gain~~Partners' oncontributions ~~sale~~5,034 of5,034 ~~assets~~Net 47income 117,~~751~~083 26171,~~366~~168 ~~Other 2~~288,~~066~~251 ----------- -~~----------~~ ----------- ~~1,534,376 995,456 930,669~~ ----------- --~~---------~~ ~~-----------~~Balance ~~Expense~~at ~~(Note~~December 5)31, ~~Fees~~1999 ~~to managing general partner 87~~1,~~900 87~~361,~~900~~198 87280,~~980~~215 ~~Production expense 436~~1,~~551 393~~641,~~804~~413 ~~517,358~~Partners' ~~Severance~~distributions ~~tax 75~~(423,~~118~~163) 49(490,~~014~~791) 41(913,~~571~~954) ~~Depreciation,~~Partners' ~~depletion~~contributions ~~and amortization 130~~5,~~877~~908 ~~158~~5,~~620~~908 ~~1,330,640~~Net ~~Other~~income 15380,~~573~~922 17407,~~867~~435 16788,~~374~~357 ----------- -~~----------~~ ----------- ~~746,019 707,205 1,993,923~~ ----------- --~~---------~~ ~~-----------~~Balance ~~Net~~at ~~Income~~December ~~(Loss)~~31, $2000 ~~788~~1,~~357~~318,957 ~~$ 288~~202,~~251~~767 $(1,~~063~~521,~~254)~~724 ~~===========~~Partners' ~~===========~~distributions ~~=========== Allocation of Net Income~~ (~~Loss~~261,900) (~~Note~~348,100) 7(610,000) ~~Limited~~Partners' ~~partners~~contributions ~~$ 380~~50,~~922~~692 ~~$ 117~~50,~~083~~692 $Net ~~(649,141)~~income ~~General partners 407~~184,~~435~~865 ~~171~~254,~~168~~955 ~~(414~~439,~~113)~~820 ------------ ----------- ------------- $Balance ~~788,357~~at $December ~~288~~31,~~251~~ 2001 $( 1,~~063~~241,~~254)~~922 ~~=========== =========== =========== Net Income per~~ $~~5,000~~ ~~Limited Partner Unit (2~~160,~~425~~314 ~~Units Outstanding)~~ $ ~~157~~1,402,236 ~~$ 48 $ (268)~~ ============ =========== =============

-------------------------------------------------------------------------------- See accompanying notes to financial statements. 13 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Statements of Cash Flows For the Years Ended December 31, 2001, 2000 and 1999 --------------------------------------------------------------------------------

~~Limited~~2001 ~~General~~2000 ~~Partners~~1999 ~~Partners Total~~ ----------- ----------- ----------- ~~Balance~~Cash atFlows ~~December~~From ~~31,~~Operating ~~1997~~Activities Net income $ 2439,~~225,481~~820 $ ~~852~~788,~~149~~357 $ 3288,~~077~~251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation,~~630~~ ~~Partners'~~depletion ~~distributions~~and (amortization 204,~~913)~~153 130,877 158,620 Gain on sale of assets (~~159~~12,~~100~~801) (~~364~~47,~~013~~751) ~~Partners' contributions~~ (~~Note 4~~Increase) ~~22,977~~decrease ~~22,977~~in ~~Net~~accounts ~~income~~receivable ~~(loss)~~34,526 (~~649~~15,~~141~~697) (~~414~~56,~~113~~496) Increase (1decrease) in accounts payable 6,~~063~~704 10,~~254~~381 (5,540) --------- --------- --------- Net cash provided by operating activities 672,402 866,167 384,835 --------- --------- --------- ~~Balance~~Cash atFlows ~~December~~From ~~31,~~Investing ~~1998~~Activities ~~1,371,427~~Acquisition ~~301,913~~of ~~1,673,340~~property ~~Partners'~~and ~~distributions~~equipment (~~127~~182,~~312~~183) (~~197~~21,~~900~~992) (~~325~~5,~~212~~894) ~~Partners'~~Proceeds ~~contributions~~from ~~(Note~~sale 4)of 5assets 12,~~034~~801 555,~~034~~687 --------- --------- --------- Net ~~income~~cash ~~117~~used in investing activities (169,~~083~~382) ~~171~~33,~~168~~695 ~~288~~(5,~~251~~894) ----------- ----------- ----------- ~~Balance~~Cash atFlows ~~December~~From ~~31,~~Financing ~~1999~~Activities 1Partners' contributions 50,~~361,198~~692 ~~280~~5,~~215~~908 15,~~641,413~~034 Partners' distributions (~~423~~610,~~163~~000) (~~490~~913,~~791~~954) (~~913~~325,~~954~~212) ~~Partners'~~--------- ~~contributions~~--------- ~~(Note~~--------- 4)Net ~~5,908~~cash ~~5,908~~used ~~Net~~in ~~income~~financing ~~380~~activities (559,~~922~~308) ~~407~~(908,~~435~~046) ~~788~~(320,~~357~~178) --------- --------- --------- Net Change in Cash (56,288) (8,184) 58,763 Cash - beginning of year 58,887 67,071 8,308 --------- --------- --------- ~~Balance~~Cash at- ~~December~~End ~~31,~~of ~~2000~~Year $ 12,~~318,957~~599 $ ~~202~~58,~~767~~887 $ 167,~~521,724~~071 =========== =========== ===========

-------------------------------------------------------------------------------- See accompanying notes to financial statements. 14 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Notes to Financial Statements -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies Texland Drilling Program-1981, Ltd. (the "Partnership") was organized as a limited partnership on July 20, 1981, for the purpose of engaging in oil and gas exploration and production. Texland Properties-1981, a general partnership, and Texland Petroleum, Inc. are the general partners. The managing general partner is Texland Petroleum, Inc. Partnership operations are conducted predominately in West Texas. The Partnership shall continue in existence, unless terminated sooner through the occurrence of a final terminating event as defined by the Partnership agreement, until December 31, 2006, as extended through approval by the limited partners owning a majority of aggregate Partnership subscriptions. The Partnership's accounting policies are summarized below: Basis of Accounting The Partnership maintains its financial records on the income tax basis. The financial statements are presented in accordance with generally accepted accounting principles. The primary differences in accounting methods are identified in Note 7. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment Costs incurred for the acquisition of producing and nonproducing leaseholds are capitalized. Costs of intangible development and lease and well equipment incurred to drill and equip successful exploratory and development wells are capitalized. Costs to drill and equip unsuccessful exploratory wells are charged to operations while costs of unsuccessful development wells remain capitalized. Costs associated with uncompleted wells are capitalized as wells-in-progress. Nonproducing Leaseholds Costs of nonproducing properties are charged to expense at such time as they are deemed to be impaired, based upon periodic assessments of such costs. Amortization and Depletion Leasehold costs of producing properties are amortized on the unit-of-production method based on estimated proved oil and gas reserves. Intangible development costs of producing properties are amortized on the unit-of-production method based on estimated proved developed oil and gas reserves. Depreciation Depreciation of equipment is provided by the unit-of-production method based on estimated proved developed oil and gas reserves. -------------------------------------------------------------------------------- 15 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Notes to Financial Statements -------------------------------------------------------------------------------- 1. Summary of Significant Accounting Policies (continued) Income Taxes No provision for income taxes has been made, since such liability is that of the Partners rather than that of the Partnership. Statement of Cash Flows For purposes of these statements, the Partnership considers cash on deposit and highly liquid money market funds as cash and cash equivalents. Allocation of Net Income Revenues and costs of the Partnership are allocated between the general and limited partners in accordance with the Partnership agreement. Fair Values of Financial Instruments The Partnership's financial instruments consist of cash, accounts receivable and accounts payable. The carrying amount of each of these financial instruments reported in the accompanying balance sheets approximate the instruments fair value. 2. Costs Incurred in Oil and Gas Producing Activities The following summarizes the Partnership's costs incurred in its oil and gas activities, all of which were conducted within the United States, for the years ended December 31: Lease Acquisition Costs Development Costs ----------------------------- ----------------------------- Expensed Capitalized Expensed Capitalized ------------ --------------- ------------ --------------- 1999 $ 1,084 $ 119 $ 4,810 2000 19 56 21,973 2001 262 187,977 3. Acquisition of Nonproducing Properties The Partnership acquired working interests in certain oil and gas properties through assignments from other Texland Drilling Program partnerships. These acquisitions involved no cost to the Partnership and are subject to retained nonworking interests by the assignor. Upon payout of these properties, the assignor has an option to convert the retained nonworking interest to a working interest. 4. Contributions by General Partners Under terms of the Partnership agreement, Texland Properties-1981 is charged for certain costs related to drilling and production operations, which are required to be capitalized for federal income tax purposes. These costs are treated as capital contributions. In addition, Texland Properties-1981 -------------------------------------------------------------------------------- 16 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Notes to Financial Statements -------------------------------------------------------------------------------- 4. Contributions by General Partners (Continued) and Texland Petroleum, Inc. have invested in limited partnership units in the amount of $95,000 and $30,000, respectively. These investments as a limited partner are reported with other limited partners' capital in the accompanying financial statements. 5. Payments to Managing General Partner The Partnership was charged $166,358, $166,127 and $161,107 in 2001, 2000 and 1999, respectively, for technical and accounting services performed by employees of the managing general partner. These charges are included in intangible development costs, production expenses and fees to managing general partner. Supervisory fees charged to the Partnership by the managing general partner for drilling and operating the partnership wells were $146,869, $134,936 and $131,552, in 2001, 2000 and 1999, respectively, and are included in intangible development costs and production expenses. These charges are allocated between the general and limited partners based upon applicable revenue and expense sharing rates. 6. Major Purchasers Purchasers, which accounted for 10% or more of the Partnership's sales, were as follows: 2001 2000 1999 ------------- ------------- ------------- AMOCO Production Company 30% 34% 31% Phillips Petroleum 45% 51% 47% Highland Energy Company 24% 14% ------------- ------------- ------------- 99% 99% 78% ============= ============= ============= Texland Petroleum, Inc. receives substantially all revenues directly from the purchasers and subsequently disburses these revenues to interest owners. Substantially all trade accounts receivable were due from Texland Petroleum, Inc. at December 31, 2001 and 2000. -------------------------------------------------------------------------------- 17 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Notes to Financial Statements -------------------------------------------------------------------------------- 7. Reconciliation of Book-Tax Reporting Differences Although the Partnership financial statements are prepared in accordance with generally accepted accounting principles, its books and records are maintained on the basis of accounting used for federal income tax purposes.

~~2000~~Limited ~~1999~~General ~~1998~~Partners ~~-----------~~Partners ~~-----------~~Total ------------ ~~Cash Flows From Operating Activities Net income (loss) $ 788,357 $ 288,251 $(1,063,254)~~ ------------ ----------- --~~---------~~ ~~Adjustments~~Net toIncome ~~reconcile~~Differences: ~~net~~Net income ~~(loss)~~for tofinancial ~~net~~reporting ~~cash~~purposes ~~provided~~$ ~~by operating activities: Depreciation~~184,865 ~~depletion~~$ ~~and amortization 130~~254,~~877~~955 ~~158,620~~$ 1439,~~330,640~~820 ~~Gain on sale of assets (47,751) (26,366) (Increase) decrease in accounts receivable (15,697) (56,496) 41,664 Increase (decrease) in accounts payable 10,381 (5,540) (3,424)~~ ----------- ----------- ----------- ~~77,810~~Expenses ~~96,584~~for ~~1,342,514~~federal ~~-----------~~income ~~-----------~~tax ~~-----------~~purposes ~~Net~~capitalized ~~cash~~for ~~provided~~financial byreporting ~~operating~~purposes ~~activities 866,167 384,835 279,260 ----------- ----------- ----------- Cash Flows From Investing Activities Acquisition of property and equipment~~ (21137,~~992~~533) (5137,~~894~~533) ~~(19,414)~~Additional ~~Proceeds~~gain ~~from~~on sale of assets ~~55,687~~for ~~26,366~~federal ~~-----------~~income ~~-----------~~tax ~~-----------~~purposes ~~Net cash used in investing activities 33~~3,~~695~~082 (52,~~894)~~961 6,~~952~~043 ~~-----------~~Excess ~~-----------~~of ~~----------- Cash Flows From Financing Activities Partners' contributions 5~~depreciation,~~908~~ ~~5,034~~depletion ~~22,977~~and ~~Partners'~~amortization ~~distributions~~expense ~~(913,954)~~for ~~(325,212)~~financial ~~(364,013)~~reporting ~~-----------~~purposes ~~-----------~~over ~~-----------~~amounts ~~Net~~for ~~cash~~federal ~~used~~income intax ~~financing~~purposes ~~activities (908~~132,~~046)~~802 ~~(320~~34,~~178)~~087 ~~(341~~166,~~036)~~889 ----------- ----------- ----------- ~~Net~~Additional ~~Change~~income infor ~~Cash~~federal ~~(8,184)~~income ~~58,763~~tax purposes (541,~~824~~649) ~~Cash - beginning of year 67~~37,~~071~~048 835,~~308~~399 ~~63,132~~ ----------- ----------- ----------- ~~Cash~~Net -income ~~End~~for offederal ~~Year~~income tax purposes $ 58183,~~887~~216 $ 67292,~~071~~003 $ 8475,~~308~~219 =========== =========== ===========

-------------------------------------------------------------------------------- 18 Texland Drilling Program-1981, Ltd. (A Limited Partnership) Notes to Financial Statements -------------------------------------------------------------------------------- 7. Reconciliation of Book-Tax Reporting Differences (continued)

Limited General Partners Partners Total ------------ ------------ ------------ ~~Net~~Partners' ~~Income~~Capital Differences: ~~Net~~Partners' ~~income~~capital ~~(loss)~~at December 31, 2001, for financial reporting purposes $ ~~380~~1,241,922 $ ~~407~~160,~~435~~314 $ ~~788~~1,~~357~~402,236 ~~----------~~Additional ~~----------~~income ~~---------~~(loss) ~~Expenses~~ for federal income tax purposes: ~~capitalized~~2001 ~~for financial reporting purposes~~ (141,~~598~~649) ~~(14~~37,~~598)~~048 ~~Additional~~35,399 ~~gain~~2000 on71,096 ~~sale~~19,652 of90,748 ~~assets~~1999 ~~for~~96,076 ~~federal~~20,149 ~~income~~116,225 ~~tax~~1998 ~~purposes~~773,151 5510,~~235~~714 1,~~215~~283,865 61997 112,~~450~~381 ~~Excess~~132,092 of244,473 ~~depreciation~~1996 99,228 ~~depletion~~74,176 ~~and~~173,404 ~~amortization~~1995 ~~expense~~157,172 ~~for~~120,204 ~~financial~~277,376 ~~reporting~~1994 ~~purposes~~197,999 ~~over~~107,966 ~~amounts~~305,965 ~~for~~1993 ~~federal~~277,730 ~~income~~214,742 ~~tax~~492,472 ~~purposes~~1992 80240,459 18100,~~437~~370 98340,~~896~~829 ~~----------~~1991 ~~----------~~318,408 ~~---------~~152,615 ~~Additional~~471,023 ~~income~~1990 ~~for~~550,882 ~~federal~~160,269 ~~income~~711,151 ~~tax~~1989 ~~purposes~~552,963 71120,~~096~~851 19673,~~652~~814 901988 795,~~748~~772 (36,000) 759,772 1987 517,630 (3,242) 514,388 1986 332,931 (253,798) 79,133 1985 921,282 (682,039) 239,243 1984 1,276,759 (479,063) 797,696 1983 1,145,881 76,871 1,222,752 1982 (503,533) (134,627) (638,160) 1981 (8,051,462) (125,697) (8,177,159) Investment tax credit basis reduction not recognized for financial reporting purposes (39,178) (39,178) ------------ ------------ ------------ ~~Net~~Partners' ~~income~~capital December 31, 2001, for federal income tax purposes $ ~~452~~1,~~018~~123,078 $ ~~427~~254,~~087~~389 $ ~~879~~1,~~105~~377,467 ============ ============ ============

-------------------------------------------------------------------------------- 19

Limited General Partners Partners Total ----------- ----------- ----------- Partners' Capital Differences: Partners' capital at December 31, 2000, for financial reporting purposes $ 1,318,957 $ 202,767 $ 1,521,724 Additional income (loss) for federal income tax purposes: 2000 71,096 19,652 90,748 1999 96,076 20,149 116,225 1998 773,151 510,714 1,283,865 1997 112,381 132,092 244,473 1996 99,228 74,176 173,404 1995 157,172 120,204 277,376 1994 197,999 107,966 305,965 1993 277,730 214,742 492,472 1992 240,459 100,370 340,829 1991 318,408 152,615 471,023 1990 550,882 160,269 711,151 1989 552,963 120,851 673,814 1988 795,772 (36,000) 759,772 1987 517,630 (3,242) 514,388 1986 332,931 (253,798) 79,133 1985 921,282 (682,039) 239,243 1984 1,276,759 (479,063) 797,696 1983 1,145,881 76,871 1,222,752 1982 (503,533) (134,627) (638,160) 1981 (8,051,462) (125,697) (8,177,159) Investment tax credit basis reduction not recognized for financial reporting purposes (39,178) (39,178) ----------- ---------- ----------- Partners' capital December 31, 2000, for federal income tax purposes $ 1,201,762 $ 259,794 $ 1,461,556 =========== ========== ===========

Filing Compare · TEXLAND DRILLING PROGRAM 1981